Accounting firm RSM Bird Cameron has provided some good news for investors incurring losses on the Sharemarket, saying that if a person can demonstrate they are a ‘share trader’ rather than a ‘share investor’, they will be allowed to claim a tax deduction for losses on the share market.
RSM Bird Cameron director of tax services Rami Brass pointed to rules which do not allow an individual share investor to claim a tax deduction for losses on the sale of shares.
However, share traders would find their losses are deductible and can be offset against ordinary income such as salary and wages, Brass said, adding there was no hard and fast rule set by the Australian Taxation Office (ATO) to describe a ‘share trader’.
"There are a number of ATO rulings and case law which try to define who is a share trader," Brass said.
The factors that indicate a person is a share trader include the profit making purpose of the activity, regular and routine engagement in trading, and the existence of a business plan, among other things.
"The greater the volume, repetition and capital employed where the person displays a high level of professionalism in carrying out share trading activities, the more likely the person is a share trader," Brass said.
However, it is important a person trading shares obtains advice from a tax agent before deciding they are a ‘share trader’, he added.
Brass also pointed out that while investors cannot claim a tax deduction on losses from the sale of shares, interest on borrowings to acquire shares is tax deductible, and can be offset against the person’s taxable income.
